Minnesota would benefit from federal tax reform

Article by: Omar Ishrak

July 11, 2013 - 5:59 PM

In Minnesota this week, the chairmen of the powerful congressional tax-writing committees, Sen. Max Baucus and Rep. Dave Camp, launched their national tour to promote comprehensive tax reform. Minnesota businesses and residents should applaud this initiative, because the time for tax reform is long overdue.

As the leader of a Minnesota-based business with operations, sales and customers in more than 120 countries around the world, I clearly see the need for federal corporate tax reform to support American economic competitiveness in a highly interconnected world. Minnesota’s workers will benefit from a code that attracts investment, drives job growth and encourages innovation in the United States.

The last comprehensive reform of the U.S. tax code occurred in 1986, more than a generation ago, and the tax system has simply failed to keep pace with global developments. That tax reform effort resulted in a rate reduction to 34 percent. Since that time, the United States has increased its statutory corporate rate to 35 percent, while most countries in the rest of the economically developed world have decreased their statutory corporate rates — by an average of 20 percentage points. Today, the United States has the highest combined federal and state corporate income tax rate among developed countries. The federal rate alone is 10 percentage points higher than the average combined federal and state tax rate of other advanced economies. U.S. companies historically have been the dominant players on the world stage, but today they face strong competition from companies based both in developed countries as well as in fast-growing emerging economies, which also have much lower tax rates.

In addition, U.S. international tax rules encourage American companies to keep foreign earnings outside the United States, instead of investing at home, where they could contribute to economic growth and job creation. We remain one of the few countries that subject most earnings generated in another country to a heavy tax if those earnings are repatriated. This gives companies based outside the United States the advantage of investing their global earnings in their home country without further taxation, while U.S.-based companies do face further taxation if they wish to invest foreign earnings back in the United States.

Tax rules that allow American companies to be globally competitive could result in more jobs here in Minnesota. With almost 95 percent of the world’s consumers living outside our national borders, foreign demand for American goods and services offers tremendous potential for the United States. If Minnesota-based companies like ours can become stronger globally, we can also ensure the strength and prosperity of our operations in Minnesota. According to a new study by the Business Roundtable, 762 globally engaged companies operating in Minnesota were directly and indirectly responsible for nearly half of all private-sector employment in the state in 2011. These companies, their suppliers and the spending of their employees supported 1.4 million Minnesota jobs, produced $131 billion in Minnesota’s gross domestic product and provided $80 billion in payroll to Minnesotan workers. Continued success of Minnesota businesses will lead to more jobs and a higher standard of living for all Minnesotans.

Comprehensive reform to modernize the U.S. tax system should first include reducing the U.S. corporate rate to a level that is competitive with other industrialized countries. Second, international tax rules should allow U.S. companies to return their earnings for investment and job creation at home without a tax penalty or a very minimal incremental tax at most. These changes can be adopted without increasing the deficit by carefully reexamining the tax code and clearing out the underbrush of corporate tax deductions, credits and exemptions that have grown back since 1986.

Comprehensive reform to create a more competitive tax code is something we should all wholeheartedly support. It will enable a healthier economy for Minnesota and for the United States.

Omar Ishrak is chairman and CEO of Medtronic Inc. and is a member of the Business Roundtable.